Updated at 5:35 p.m. with comments from lawyers and city officials
A Missouri appeals court has upheld a lower court's decision that exempts six employees from paying a 1% St. Louis earnings tax while working remotely outside the city.
A three-judge panel of the state鈥檚 Eastern District Court of Appeals on Tuesday denied an appeal from St. Louis Collector of Revenue Gregory FX Daly and other city officials, who argued the workers for city-based employers were subject to the earnings tax because they 鈥渞endered services鈥� in the city, even if they were doing so remotely.
鈥淭he Court holds the Earnings Tax Ordinance鈥檚 language is clear and unambiguous and the remote work done and/or services at issues were not performed or rendered in the city,鈥� Judge Michael S. Wright wrote in the decision. 鈥淓mployees were not liable for the earnings tax for the days they worked remotely outside the city and are entitled to refunds.鈥�
The 1% earnings tax, which is imposed on city workers, makes up about 37% of the city鈥檚 general revenue fund. The city imposes the tax on salaries, wages and other compensation by residents outside city limits for work done in St. Louis.
A spokeswoman for Mayor Tishaura Jones said the administration considered the dispute over the earnings tax when developing spending plans.
鈥淚n creating the 2025 budget proposal, the mayor took a financially prudent approach to take into account the potential impact of today鈥檚 decision,鈥� the spokeswoman said in a statement. 鈥淲e do not believe this decision will require changes to the budget or will impact the current level of city services.鈥�
In 2021, employees sued the city after St. Louis officials denied their requests for earnings tax refunds for days they worked outside the city during the pandemic. Judges in 2022 and 2023 ruled in favor of six remote employees.
The city鈥檚 tax collectors argued that services rendered in the city equated with services done in the city and were subject to taxation, an argument the appeals court rejected.
鈥淐ollectors correctly noted in oral argument that the world changed as a result of the pandemic,鈥� Wright wrote. 鈥淲e note the Ordinance鈥檚 language has not.鈥�
Additionally, the taxes are meant to pay for roads, lighting, fire services and other resources, but remote workers are not taking advantage of those services when they are physically outside St. Louis, the judge wrote.
The appeals court judges affirmed the trial court's decision to deny class-action status. That means the decision only applies to the six employees who brought the suit. The court also denied the plaintiffs鈥� motion for attorneys鈥� fees.
However, the decision could hamper the city鈥檚 ability to collect earnings taxes and affect tax collection. It could set a precedent that would cost the city revenue, said Mark Milton, an attorney for the workers.
鈥淭hat's not our clients' or the nonresident taxpayers' problem to solve,鈥� Milton said. 鈥淭he city's budget is what it is; that's a legislative issue and an executive issue.鈥�
Christian Stein, one of the plaintiffs, worked for years for a bank in St. Louis. He said the city had in the past reimbursed him for the taxes he paid when traveling and working outside the city. But during the coronavirus pandemic, the city suddenly denied his refund.
鈥淧eople have been teleworking for years, and the collector always issued refunds for teleworking days,鈥� he said. 鈥淎nd as the opinion points out, there was no change in the law. If the city wanted to change the law, if the state wanted to change the applicability of the earnings tax to nonresidents, they had an opportunity. ... They didn't do it.鈥�
The workers鈥� lawyers said the total tax refunds collected for the six workers will total around $10,000.
Bevis Schock, one of the employees' attorneys, said he hopes the city will issue refunds to more people than the six he represented.
鈥淭he public understands that taxes have to be paid,鈥� he said. 鈥淏ut the only taxes that have to be paid are taxes that are specifically and lawfully assessed by the legislative and executive branches.鈥�
City revenue officials continue to object to how judges are ruling on the earnings tax.
鈥淥bviously, the Court's conclusion that the earnings tax does not apply to remote work is contrary to the City's and the Collector's position,鈥� Daly鈥檚 office said in a statement. 鈥淲e are reviewing this decision and exploring many options to determine the best path forward. We will keep the community apprised of our next steps as soon as possible.鈥�
